With participants from the European Commission (DG AGRI), German Federal Competition Authority, German Farmers' Association (DBV), German Diary Association (MIV), North Rhine-Westphalia Ministry and Metro AG, the summit tried to explore the questions of whether the new EU Directive on Unfair Trading Practices will help the dairy sector, especially the milk producers to stabilize their incomes, how the wholesale and retail companies will be affected and what needs to be adjusted in terms of competition law.
While global demand for milk and dairy products keeps on increasing, production growth declined in 2018 due to weather conditions. Nevertheless in the EU, the milk production is expected to grow by 0.7 % in 2019 due to sustained demand.
Although the initial intention of the Commission proposal was the protection of farmers, the UTP agreement reached by the EU institutions in December 2018, has extended the scope to suppliers and food processors with a turnover up to €350 million with no guarantee that any benefit gained by such processors will be passed onto farmers. While the Directive protects suppliers from buyers, there is no reciprocal approach; hence it discriminates against buyers in terms of equality before the law.
The Commission representative stated that the three principles from their initial proposal were maintained namely that this is a minimum harmonization directive, small is protected against the large and there is a good enforcement mechanism. While participants from the German Farmers' Association (DBV), German Diary Association (MIV) and North Rhine-Westphalia Ministry were welcoming the new Directive for bringing small and large parties on equal terms, they pointed out to the administrative difficulties in the dynamic approach and that not everything can be solved by agricultural policies. Protection of farmers vis-à-vis the consumers is not seen as the main aim, but the increase of the farmer’s income.
Jan Werner – Head of Legal International of METRO AG - mentioned the disappointment of the retail and wholesale sector over the legislative process and the approach of the Austrian Presidency – giving the farmers a Christmas gift. He added that only 20% of the milk produced is indeed sold by the retail and wholesale and the rest is accrued to the industry to be processed and banning certain contractual terms and conditions would not increase the income of the farmers. He added that the price of milk does not depend on terms and conditions, but the demand where for instance the trade crises in Russia and China have an impact. The new Directive puts the burden of financing on wholesale and retail especially for products having a shelf-life over 60 days, and may foster in practice new protectionist measures by countries to discriminate against international companies with disproportionally high fines for minor breaches of law. Shifting the welfare from consumers to farmers is also not a good market approach. Even the Milk Industry Association does not expect significant shift in value added chain via this legislation.
The participant from Federal Competition Authority also agreed that there has been an over-regulation with the UTP- law and the Authority is involved in finding balances concerning market domination and not about giving more income to one party. The consumers can be persuaded to pay more by quality organic and fair trade products. It is about protecting competitiveness in the market. Upon question he also added that there are ways of overcoming the fear factor for anonymous complaints such as whistle blower mechanisms or aggregated complaints via an association.
We at METRO understand the need to increase farmers” income, however retail and wholesale have only around 5% of direct purchase from farmers. We will be watching closely in the next two years the implementation of the EU Directive in member states and how mediation processes such as a good functioning Supply Chain Initiative will be utilized.Jan Werner, Head of Legal International der METRO AG